Much has been said (and speculated) about the reorganization Microsoft® announced last summer in which they intend to become a Devices and Services Company, rather than their traditional business model of primarily selling perpetual software licenses. Microsoft® reorgs represent a common complaint among employees as they have regularly occurred throughout the history of the company. To be fair, MS experienced unprecedented growth and were the driving force as they defined a number of technologies and supporting business and usage opportunities, so to criticize them for repeatedly changing their organizational structure as the landscape evolved is somewhat unfair, but they have done so with such frequency that many fail to take them seriously anymore. The transition to Devices and Services does not appear to be just another reorg, however, and we continue to see signs that the impact of this one may be greater than most, if not every reorg that preceded it.
Microsoft® has demonstrated significantly increased emphasis on all things “Cloud based” during recent months, and they are following through on their commitment to increase the frequency of product updates. The latter may often be best deployed in virtual environments as cloud users aren’t faced with some of the deployment challenges of locally based software updates. Since customers continue to embrace the cloud with double digit growth as they experience the many benefits it offers it appears as though Microsoft’s® strategy is on target.
The increased emphasis on cloud based computing represents another shift to the way in which Microsoft® is attempting to evolve their business. Whereas perpetual licenses typically provide recurring revenue from Volume Licensing (VL) customers even if only as a result of payment terms that are extended over time (MS currently has approximately $23 billion which has been contracted but not billed), products deployed from an external cloud will almost always be on a subscription, or non-perpetual basis. Historically, Microsoft® relied upon Large Account Resellers (LARs) to help them sell primarily perpetual licenses to VL customers by means of Enterprise, Open, or Select Agreements. During last year’s Worldwide Partner Conference (WPC) which was near the time the Devices and Services reorg was revealed, MS announced that their “LARs” would now be known as “LSPs”, or Licensing Solution Providers. As part of that change, MS increased the authorization requirements to become a reseller and modified the incentive and compensation structure to better reward partners for driving customers to the cloud and online services. The goal is to motivate them to sell ongoing solution practices, rather than just sell license agreements. This includes increased emphasis on cloud sales, on-time renewals and true-ups, Software Asset Management (SAM), and Office 365™ Add-ons.
Licensing Solution Providers are intended to provide licensing expertise to enable cost-effective solutions for applicable devices using both on-premises and cloud based products. It’s important to note that the LSP designation is not just a renamed LAR. LSPs are required to meet certain qualifications, after which they will be assigned an EA Direct Advisor. Together, the LSP and EA Direct Advisor are exclusively authorized to sell Enterprise and Select Agreements (including Enrollment for Windows® Azure [EWA] and Server and Cloud Enrollment [SCE]).
To qualify for LSP status, the partner must have at least four sales employees who have passed the Microsoft® Certified Professional (MCP) exam for License Delivery. Additionally, at least two sales employees must hold T-36 (renewal effectiveness) certification and the company must be at the Registered Level in the Microsoft® Partner Network (MPN).
LSP authorization is earned at a territory level and must meet the same criteria in each territory in which they are authorized. To maintain their LSP Status, the partner must submit an annual business plan to MS and meet performance standards based upon revenue, growth, and business and operational execution.
The LSP model supports both direct and indirect pricing and billing. On an indirect basis, MS provides pricing to the partner and the partner sets the customer purchase price. The customer places orders and remits payment to the LSP. With direct sales, Microsoft® negotiates the EA and provides all pricing directly to the customer. The EA Direct Advisor (EDA) may offer standard, non-negotiable pricing to the customer, but cannot negotiate prices or amendments to the agreements. This is done to ensure that MS is not competing with the channel.
There are approximately four hundred Licensing Solution Providers worldwide. Microsoft’s® goal is to authorize enough LSPs to ensure competition in multiple areas of expertise and vertical markets, but not saturate the market to a point where the LSPs cannot be successful. The result is typically beneficial to VL customers as they can be assured of working with well qualified resellers who have been certified and approved by Microsoft®.